Cigna Wants To End Anthem Deal; Aetna, Humana Drop Merger

Shelving the industry consolidation were charted to address former President Barack Obama’s Affordable Care Act, Cigna Corp sought to end its deal with Anthem and Health insurers Aetna Inc and Humana Inc walked away from their $34 billion merger.

Saying that early medical costs were running a bit high, it would exit the Obamacare individual insurance market after this year, Humana also said. Humana cut back offerings for this year, saying the program needs to be changed after it turned out to be one of several insurers that lost money in 2016.

Obamacare is the national healthcare reform law that created new individual insurance and expanded Medicaid, adding 20 million people to the ranks of the insured and U.S. President Donald Trump and Republicans have vowed to repeal and replace it.

Promising that he “Will repeal, replace & save healthcare for ALL Americans”, Trump on Tuesday tweeted about Humana’s decision to exit the market.

Following the law changed everything from how doctors and hospitals are paid to the benefits insurers must provide, the combinations would help them grow, the insurers, in seeking their mergers, had said.

Seeking to block the deals, the Justice Department filed antitrust lawsuits a year after the Aetna-Humana and Cigna-Anthem deals were announced in July 2015.

While Aetna and Anthem tried to disprove notions that both mergers would lead to less competition and higher prices for Americans, the government antitrust officials have argued against the mergers on this basis. The number of national U.S. insurers would be reduced from five to three by the acquisitions.

They were weighing an appeal, Aetna and Humana said after the defeat in court on Jan. 23. While Humana shares fell 0.4 percent to $205.97, Aetna shares rose 3 percent to $125.81.

The companies said that Aetna terminated its plan to sell some Medicare Advantage assets to Molina Healthcare Inc and will pay Humana a $1 billion breakup fee, or $630 million after taxes. Molina will receive a $75 million breakup fee.

Helped by the payment from Aetna, Humana said it will raise its dividend, earn a net profit of $16.65 to $16.85 per share and buy back at least $2 billion worth of shares in 2017.

While Aetna and Anthem have both said they are considering doing so if changes are not made to the plan, Humana is the first insurer to withdraw from the Obamacare exchanges for 2017.

Humana could again be a target for Anthem or Cigna and the Trump administration might be friendlier to deals, Wall Street analysts and investors suggested.

By balancing “the probability and timing of completing a transaction,” the current environment and the process it has just gone through, the company would consider any takeover offer, Humana CEO Bruce Broussard said on a conference call.

Anthem was required to pay a $1.85 billion breakup fee and it had notified Anthem that it had terminated its merger, Cigna said.

Sating that Cigna could not back out and the merger agreement was in place until April 30, 2017, Anthem responded.

The lawsuits would likely to be settled by the two companies – which have been at odds for the past year, several antitrust lawyers said.

“We knew for weeks that all they were doing was positioning themselves for this fight,” said Matthew Cantor, an antitrust litigator with the law firm Constantine Cannon. “Over 90 percent of these high stakes commercial litigation settle.”